Had this happen on my first battle that involved troops in addition to my own party. Took me a few minutes to figure it out.
When it says "Missing Formation" up top, look to the usual formation number of those unit types. You'll see there's a little + button instead of the icon for that unit type. Click the +, in your case assign it to Cavalry, even if you have no melee cav. It just wants Formation 3 assigned to Cavalry even if the group is empty. Once you've done that, the Ready button ungreys and you're all set.
When I first saw this, I only had like 10 recruits, so it was yelling at me about Archers and Cavalry. Once I assigned formation 2 to Archers and 3 to Cavalry, fixed. That said - even after I'd done those assignments once, a few battles later it forgot Cavalry for 3 (I had some actual archers by then, but still no cavalry), and I've had to reassign it a couple of times.
So it's working... kind of, though it's pretty unclear.